The Swedish Secret to Public Sector Reform

Work organization in the public sector across Canada has long been hindered by various forms of rigidity. Most of the working conditions of government employees continue to be negotiated centrally. The principle of seniority still occupies a prominent place in collective bargaining agreements. Public sector employees also enjoy a special status that comes with undeniable advantages over workers in the private sector, especially in terms of job security.

In order to incorporate elements of flexibility and better performance incentives, and ultimately to improve the provision of public services, we could take some inspiration from the experience of Sweden, a country that managed to transform its public sector employment scheme without antagonizing unions and workers.

Grappling with serious public finance and unemployment problems in the early 1990s after three decades of relative economic decline, Sweden undertook significant reforms in order to reduce its debt and get its economy back on track.

One of the central government's first initiatives was to entrust counties and municipalities with the responsibility of looking after budgets and making decisions regarding key services offered to citizens, especially in the areas of health and education.

At the same time, an individualized system of remuneration linked to performance was put in place for government employees, replacing the former centralized, rigid and uniform structure.

Over 90 per cent of public sector employees in Sweden now have differentiated remuneration that varies as a function of worker performance, the level of responsibility associated with the tasks to be accomplished and the salary that prevails in the private sector for equivalent work.

Lifetime employment no longer exists. Job security is guaranteed only by an employee's competence. Efficient employees can be promoted, whereas employees who do not fulfill their duties can be demoted or even dismissed.

Reforms in the education sector

In the education sector, pay scales, which set teachers' salaries as a function of the numbers of years of education and seniority, were abolished in 1996. The responsibility for making decisions regarding the hiring and remuneration of teaching staff was then delegated to each individual school, and a process for evaluating teacher performance was set in place.

The greater flexibility afforded to school principals allows them not only to reward teachers based on performance and effort, but also to offer working conditions that take into account the dictates of the job market in order to attract and retain quality employees.

For example, science and math teachers receive higher salaries than teachers in other disciplines for which the pool of candidates is larger. New teachers, for whom job opportunities are more numerous at the start of their careers, are offered higher salaries than when the former system was in place.

The unions dreaded the reform at first and for a long time did not support it, fearing that it would undermine the bargaining power of teachers versus their employers and that working conditions would deteriorate as a result. However, the benefits for teachers in terms of salaries and professional autonomy obtained through differentiated performance pay were such that the unions had no choice but to recognize them.

Since their schools are also evaluated for performance, principals are called to account and can be dismissed from their duties if the results obtained fail to live up to the expectations of the population. Despite the new demands placed upon them, few school principals want to return to the former system, where their work was subjected to strict rules and circumscribed by bureaucratic decisions.

Reforms in the health care sector

The reforms carried out in the health care sector in the 1990s began with the decentralization of decision-making powers to the counties. Hospitals also gained autonomy and since 1992 have been financed on the basis of services provided, rather than with global budgets.

As with the education sector, remuneration for nursing staff is now negotiated individually and linked to performance, and can vary greatly from one region to another. The more nurses are in short supply in a given region, the higher salaries tend to be. For example, salaries paid to pediatric nurses in the Stockholm region are on average 13 per cent higher than those awarded in the Jönköping region, given that needs in terms of staff recruitment and retention are more urgent.

According to a recent study, since the early 2000s, the satisfaction levels of nurses and doctors with regard to their work have increased significantly and the absentee rate is in decline.

Interestingly, these reforms were the fruit of decisions made primarily by the Social Democratic Party, traditionally close to civil service unions and employees, and they were put in place without dismantling the welfare state to which Swedes appear to be attached. Long seen as a model worth emulating by intellectuals and politicians who favour big government, Sweden should now serve as an inspiration in the search for ways to increase the efficiency of the public sector.

Yanick Labrie is an Economist at the Montreal Economic Institute. The views reflected in this op-ed are his own.

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